British Petroleum (BP) one of the top six global oil and gas companies made a major change in strategic direction at the end of July, 2020.

Its new CEO, Bernard Looney, who worked his way up the organisation since he joined as an engineer, took over as CEO from its previous incumbent, Bob Dudley, in February. One of his first moves was to alter the direction of the company for the next ten to twenty years. The implications of this shift in focus is likely to be precursor to the transformation of the oils and gas business globally.

Why might this be the case?

We are all familiar with the growing focus on the issue of climate change over the past number of years. Pressure for all companies across all industry sectors to grapple with this challenge has emanated from a wide range of diverse sources such as governments, scientists, environmentally conscious consumers and a plethora of activist groups.

Arguably pressure groups such as Extinction Rebellion and individuals such as Greta Thunberg have devised aggressive and creative campaigns to bring climate change to the forefront of attention for governments. Despite some negative connotations associated with their protests, it has worked in so far as it has put even greater pressure on policy makers to harness their thoughts around a coherent strategy going forward.

The United Nations (UN) Secretary General, Antonio Guterres has written to all the heads of state of countries world-wide to encourage them to achieve a position of net zero emissions by 2050. It has supported a “Race to Zero” campaign as part of its diplomatic encouragement to push this forward and to have it formalised in time for the COP26 International Summit to be held in Glasgow in 2021. This was supposed to have taken place in 2020 but was postponed due to the Covid crisis.

Currently it is estimated that one-third of the world’s GDP is already committed to the principles of the Race to Zero.

So far so good, you might say. However some of the major economies have been more reluctant to embrace the various elements of climate change. Donald Trump, to the consternation of many, has adopted a negative attitude to climate change, to the extent that he largely denies its impact. The USA, together with large countries such as India and China continues to rely on fossil energy and hydrocarbons to fuel their manufacturing operations.

What has BP done to generate such publicity about its change in direction?

First some background and context.

BP was established in 1908 and was then known as the Anglo-Persian Oil Company. Over the years it has established itself as one of the top six oil companies in the world. It has experienced good and bad times during its evolution. For instance in 2010 it encountered one of its most dismal periods when it was involved in a major oil spill in the Gulf of Mexico in 2010. It has taken the best part of a decade to recover from this disaster.

In tandem with other oil companies BP has been the recipient of much criticism and opprobrium in the national and global press. Arguably the oil sector is up there with the tobacco and gambling sectors in terms of negative publicity.

This was the environment and context that faced Bernard Looney when he took over as CEO in February 2020.

One of his initial statement was the intention to make BP a net-zero carbon emitter by 2050. In July he put some substance on this overall target. Currently 97 per cent of the BP business is hydrocarbon.

Firstly he promised to make a tenfold increase in investment in green power, from $500 million to $5 billion a year and to develop 50 gigawatts of renewable capacity by 2030. To put this in context, this figure is more than the UK’s entire current capacity.

He also stated that the company would move from 7,500 electric charging points to 70,000.

He promised to reduce investment in oil and gas production, the staple part of its business to around a half of its current spending.

He made the decision to stop exploring new countries for oil and gas development (excluding BP’s stake of around twenty per cent in the Russian oil company called Rosneft.

Looney argued that the company cannot move quickly to a position of being a net-zero carbon company. The existing hydrocarbon business will, in his view, generate the cash to allow for the investment in the initiatives necessary to move it to its targeted position by 2050.

It has already securing and supplying agricultural and bio feed stores to renewable fuels producers and has added renewable diesel production to one of its main refineries.

What are we to make of this change in approach?

As mentioned earlier, the pressure to move away from fossil fuel has been inexorable. On a more practical level, some of the organisations that BP has sponsored, such as the Royal Shakespeare Company and National Galleries Scotland have cancelled their respective deals. Even internally, key managers were leaving, or planning to move from the company because of the toxic publicity and image that it had in the media.

Reducing its carbon footprint in oil and gas exploration by 35% to 40% by 2030 is a not inconsiderable target. It also plans to sell off some of its assets through a rationalisation of its portfolio of forecourts and oil and gas facilities.

We should note that the reduction on oil and gas exploration has clear benefits. Such developments require major investment in drilling, platform development and general infrastructure. Simply pumping out oil on a daily basis, by contrast, is low-cost and the cash goes straight into the company’s coffers. In many ways this will provide the opportunity to pay down the debt that BP has built up from previous acquisition and pay for the various initiatives in the so called “carbon lite” energy economy.

What are the challenges facing BP in general and Looney in particular, as they roll out this new approach? One area that gives cause of concern is the style of management that exists within BP.As you might expect in a long established “heritage” brand employing over 60,000 people world-wide, the traditional principles of hierarchy and command and control procedures. It will now be operating in sectors that require more entrepreneurial skills and attributes. Older senior managers will have to adopt a more creative approach to dealing with the “carob lite” sector, where there is much competition.

Looney identifies three points of differentiation which he feels will make BP a very competitive player in this new environment.

  • Integrated energy systems: along and across value chains, pulling together all of BP’s capabilities to optimise energy systems and create comprehensive value propositions for customers
  • Partnering with countries, cities and industries as they shape their own paths to net zero
  • Digitalised innovation – to enable new ways to engage with customers, create efficiencies and support new businesses.

Delivering the strategy will see BP become a very different company by 2030. By then, BP aims for:

Investment in low carbon energy to have increased from approximately US$500 million to around US$5 billion/y.

Developed renewable generating capacity to have grown from 2.5 GW in 2019 to approximately 50 GW.

Bioenergy production to have risen from 22 000 bpd to more than 100 000 bpd.

Hydrogen business to have grown to have 10% share of core markets.

Global customer interactions to have risen from 10 million to 20 million/d.

Electric vehicle charging points to have increased from 7500 to over 70 000.

Energy partnerships with 10 – 15 major cities around the world and three core industries.

How will BP fare over the next decade? Let’s see.

Discussion questions

  1. Assess the approach adopted by Bernard Looney. In particular focus on whether this has substance. Is it likely to succeed?
  2. Do the outcomes from the new direction in strategy match up with the strengths and weaknesses of BP? To what extent is approach radically different from its main competitors?
  3. To what extent do sectors such as wind and solar energy and hydrogen production represent realistic opportunities for BP? Are there other sectors that it can develop as it goes forward?

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